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Daianu, Daniel; Kallai, Ella --- "Disinflation and monetary policy arrangements in Romania" [2005] ELECD 384; in Liebscher, Klaus; Christl, Josef; Mooslechner, Peter; Ritzberger-Grünwald, Doris (eds), "European Economic Integration and South-East Europe" (Edward Elgar Publishing, 2005)

Book Title: European Economic Integration and South-East Europe

Editor(s): Liebscher, Klaus; Christl, Josef; Mooslechner, Peter; Ritzberger-Grünwald, Doris

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781845425173

Section: Chapter 9

Section Title: Disinflation and monetary policy arrangements in Romania

Author(s): Daianu, Daniel; Kallai, Ella

Number of pages: 26

Extract:

9. Disinflation and monetary policy
arrangements in Romania
Daniel Daianu and Ella Kallai

1. INTRODUCTION1

Disinflation has been pursued successfully in Romania in recent years.
Inflation came down from over 40 per cent in 2001 to 14 per cent in 2003
and 9.3 per cent in 2004. By 2007 it should come down to around 3 per cent.
The benefits of a low-inflation environment are unquestionable, as price
stability is the ultimate objective of monetary policy. In addition, low infla-
tion is a pre-condition for EU accession. There only remains the other criti-
cal question, namely, what is the proper strategy to achieve the ultimate
objective? Different central banks have adopted different strategies, placing
a different emphasis on the various pieces of information, elements of their
decision-making process or different aspects of their communication poli-
cies. Inflation targeting (IT) is one of those strategies.
The National Bank of Romania (NBR) plans to introduce IT in 2005.
This regime brings a series of benefits for a central bank, including a clear
policy focus on inflation. At the same time the Romanian central bank
needs to unburden its monetary policy to achieve further disinflation. But
three main contradictory pressures are likely to arise: first, the requirements
imposed by the need to achieve nominal and real convergence with a view
to joining the EU in 2007 and European Monetary Union (EMU) at a later
stage push the central bank toward a policy mix that is able to ensure
growth ...